February 26, 2008

Yelp Raises $15 Million Fourth Round, Rumored Valuation $200 Million

Henry Work

66 comments »

Yelp, the popular local review site, will soon announce a new $15 million dollar round of financing led by DAG Ventures. The valuation is rumored to be in the $200 million range. Yelp says that they will be using the money to expand geographically, add onto their sales team, and establish an office in NYC (they are based in San Francisco). This is Yelp’s fourth round of funding since their founding in 2004.

Yelp is also boasting some impressive stats: 8.3 million uniques in the past 30 days and over 2.3 million reviews (with the 1 million mark being reached on May 2007) (these are internal Google Analytics stats that the company shared with us). Yelp is in a competitive space with InsiderPages (acquired by Citysearch), and YellowBot. The real competition, though, will eventually be Google Local and Yahoo Local.

With this latest round, DAG joins previous investors Max Levchin ($1 million, Summer 2004), Bessemer Venture Partners ($5 million, Q4 2005), and Benchmark Capital ($10 million, Q4 2006). The company has now raised a total of $31 million. Revenues are rumored to be sub $10 million/year.

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Comments

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Jen

February 26th, 2008 at 8:44 pm

C’mon. Really? I mean, really??? $200M? Any idea how/when they’re doing on profitability??
Mr. Delcher

February 26th, 2008 at 8:46 pm

I’m curious to know where their revenues are. Any ideas what ballpark we’re in?
WTL

February 26th, 2008 at 8:49 pm

So 4 years later, the best stat they can give is the number of reviews written? I’m not so fantastical as to ask about profitability (after all this is a Valley Biz) …. but not even any revenue numbers? What do they say about throwing good money after bad…
The Hater

February 26th, 2008 at 8:50 pm

DAG?

David Alan Grier rules!
Alex

February 26th, 2008 at 8:51 pm

Quite impressive. But, agree with other posts. What are the revenue numbers?
Jeff R

February 26th, 2008 at 8:55 pm

I think its a great site with huge potentail

You wonder why all the big telcos and directories arent doing the same thing. They already have the listings, jsut need to add reviews

Think this will be a prime target soon

How do you rate? Check out http://www.yupnup.com
Bill Templeton

February 26th, 2008 at 9:06 pm

Agreed…four years later and still not willing to quote revenue? I guess (hope) we can assume that DAG Ventures was given this number…
sir mapalot

February 26th, 2008 at 9:13 pm

yeah, let’s talk revs. the # reviews (eyeballs in 1999-speak) is getting tired.
building out a salesforce *sucks*
Jon Bischke

February 26th, 2008 at 9:18 pm

Congrats to the head Yelpers. It’s pretty easy to envision a future in which local merchants of all kinds live and die based on their Yelp reviews. Trip Advisor did a fantastic job of making the hotel industry shape up. Yelp is doing the same for the restaurant biz and it’ll be great to see that spread even further.
CAPTAIN_WTF

February 26th, 2008 at 9:25 pm

Why do they need a “second” NYC office? LOL. Is this really a crash pad for the SF “execs”?!
Water

February 26th, 2008 at 9:29 pm

Congrats to the yelp team, I see potential in local review sites, I was working on hotels website few days ago and those sites are very helpful, that was huge amount of useful information users put on those sites.
SutroStyle

February 26th, 2008 at 9:50 pm

@Why do they need a “second” NYC office? LOL. Is this really a crash pad for the SF “execs”?!

Because Yelps distribution is not viral. It’s manual, word of mouth.
This is why they turn no profit.
Google dropping them from local search results was a major blow to Yelp probably.

Here’s how this works:

Local interest websites are always non-viral, because they operate in the disjoint “internets” of each metropolitan area. So one needs to wait a very long time before they reach decent size. For Craigslist, it took 7-8 years. VCs will not wait that long. To accelerate this, you can throw money at the distribution/marketing. I do not know what the timescale for them will be in NYC, but VCs may get impatient, especially because this business is very recession-prone, and the recession is coming.
The Hater

February 26th, 2008 at 10:08 pm

Conspiracy theory: Yahoo! has a new open search platform. Yelp just happens to have a very rich database of user-generated reviews, albeit tailored mostly to very metropolitan areas. I believe I read somewhere that Yelp was a launch partner with Y!’s new strategy; could this be a part of the story?

Inquiring haters want to know.
Yelp Sucks

February 26th, 2008 at 10:10 pm

gimme a break…

parties and chicks are not a sustainable biz model, last time I checked

here’s the deal…

scenario 1

restaurant gets bad review… and will not advertise on yelp.

restaurant gets great review… and will not advertise on yelp… what’s the incentive

scenario 2

restaurant gets bad review posted by competitor… yelp does nothing… it’s the wild west of reviews…. and will not advertise on yelp

restaurant gives out free parties to get some good reviews on yelp… and will not advertise on yelp

bottom line… there is no biz model here, i’m sure the yelp revenue numbers are pathetic, hence the reason they are not being released

hot chicks and beer parties will not save yelp…. frankly a lot of the reviews are crap… like reading comments in a bathroom stall…
Rishi

February 26th, 2008 at 10:38 pm

i’m no expert, but $200mm for sub-$10 million revenue, no profits, and difficult to scale growth (building a community in a new metro area takes time and local ad sales takes sales manpower) seems really generous. i guess yelp is essentially the market leader and probably does get high return traffic from those who do use the site… maybe you can argue a decent ltv for each user?
whoopie

February 26th, 2008 at 10:54 pm

yelp missed the boat. they should have figured out how to be bought by summer 07 when the market was amenable to high bids, or better yet, 06 when the “local” market was still hot

now “local” has turned out to be a big yawn/no-rush market that the majors can just pick away at for the next decade. and certainly the macro environment isn’t going to sustain that valuation. $200 million? that number was pulled out of thin air.

the yelp boiz must be pissed, zuckerberg kicked them off of every magazine cover in the US, and even his hype is flagging.

yelp is an mildly attractive mashup with lots of astroturfed reviews. were i to buy it, i would just buy the review database and trash the rest. its not like their approach to sales is particularly innovative, and their site itself is just yet-another.
in sumary - yelp missed the boat.
Peter Epstein

February 26th, 2008 at 10:57 pm

Yelp is able to sell themselves, as well as the market that they’re in. They don’t need to show revenue because DAG is just banking on them getting bought out. With major players like Google and Yellowpages, as well as Microsoft having a Local Search department now, it is only a matter of time before Yelp’s traffic gets enough attention for a buyout. Considering the management team containing Stoppelman and Simmons, they have also attained enough credability for themselves that it is worthit for investors to buy into them.

Peter Epstein
TheWebWar.com
whoopie

February 26th, 2008 at 11:01 pm

and agree with another poster here - the college-newspaper level of wit in most yelp reviews gets tired fast. yahoo local posters may be only semi-literate, but they have a tendency to get to the point.

if i want to read mcsweeny’s, i know where to find it. yelp needs an editorial overhaul.
Bill Templeton

February 26th, 2008 at 11:11 pm

Is it my imagination or was this post updated with the estimated rev #? If so, thanks Henry.

$200M on “sub $10M” in rev…anywhere from a 20-40x multiple on rev…sounds quite rich for a company that has relatively modest growth and is still trying to figure out how to monetize in a sustainable and scalable fashion…
Henry Work

February 26th, 2008 at 11:20 pm

Bill: the post was updated.

CAPTAIN: it’s not clear if they this is their second office total, or their second in nyc. i’ll ask around.
CAR

February 26th, 2008 at 11:40 pm

wow just amazing………………………
a

February 26th, 2008 at 11:43 pm

Why all the haters?

Good for Yelp.

Who cares if they make any money? They provide a useful service. I compare places when I am in a new city, but have never reviewed.

I really don’t care if they make money, get bought, or keep things the same for a couple years.

None of us is going to see any of that money anyway…

Good Luck!
Henry Work

February 26th, 2008 at 11:43 pm

CAPTAIN, Sutro: the NYC office will be their second total, and their first outside SF.
Peter Epstein

February 26th, 2008 at 11:44 pm

http://www.simplyhired.com/a/j.....PR+Manager

http://www.washingtonpost.com/.....c-business

From the recent job posting in the New York area and the Washington Post reporting that Yelp will be opening a “small office” - it seems like its their first office in NY area, and second overall.

Could be wrong, but that seems like what it is.
Peter Epstein

February 26th, 2008 at 11:48 pm

Haha nevermind, guess Henry beat me to it. Thanks!
Ernstjan Albers

February 27th, 2008 at 12:56 am

IMHO there types of review sites only work when the community is small, and there is great overlap in taste. If you would check out a review in Yelp, I bet you get confused between all the greats, perfect, sucks and worst meal in my live.

This is problem of all big social network based applications, the growth kills the relevance for the individual. (even @ Digg). An solution to this problem is using similarity between reviewers to give a ranked order of results, yet an other could be setting apart the popular places where your friends go for a particular query.
Wayne Schulz

February 27th, 2008 at 2:08 am

Before you get excited, take a look at an example of their “expansion” and lack of quality control over “reviews”.

Reviews like these will slip through, but there should be a mechanism to catch them.

Unless of course Yelp thinks there is a business model in repeated four letter word reviews whose primary purpose is to rant about how you can’t wear a baseball cap inside Michael Jordan’s Steakhouse.

http://www.yelp.com/biz/michae.....dAJz5z0QHQ

How is this any type of sustainable business model? What’s the value add for Yelp? That they can attract college students with too much time on their hands to write smart ass reviews.

Everyone overlooks the true meaning of “another round of VC”

Isn’t it — “we’ve run out of money and our original investors have closed their wallets because they’re afraid we are done”…?
Mike Koss

February 27th, 2008 at 5:35 am

Yelp is a great site - I’ve recently been using it to find great spots to grab a weekend breakfast. The total raise at $31M is a BIG NUMBER. And one wonders - WHY? Certainly the technology development and data center costs can build the equivalent site for far less.

An even bigger number - their purported $200M valuation. That’s $25 per monthly unique. That’s BUBBLE territory, in my book.

Revenues are claimed at “sub $10M”? My (generous) guess - they’re getting 20M monthly page views at $4 CPM -> that’s less than $1M per year. It doesn’t make sense to me they can be making anywhere near $10M.
TechcrunchBook

February 27th, 2008 at 6:42 am

I’ve officially given up on trying to understand the rationale behind silicon valley investment capital. What’s next? $25M series B round on Mizpee.com?
TechcrunchBook

February 27th, 2008 at 6:44 am

@ 27. You are correct. “Sub $10M” means you are a small business, so they are basically claiming to be as such. Whether it’s $9.9M, or $200,000 (probably the latter). If they were bringing in $10M a year in revenue it’s obvious they would be profitable and would not need this extra money.
Erik

February 27th, 2008 at 7:07 am

This is a company that needed to grow slowly and organically like craigslist.

A big raise will drive this thing into the crapper before it can reach critical mass (of course they’ll be great parties in the meantime)
Gabe

February 27th, 2008 at 7:12 am

I love Yelp. I think it is one of the most useful sites available. I have some great ideas for them if they want to get in touch with me on what I believe is going to be the next big push in the web space.
Ernstjan Albers

February 27th, 2008 at 7:16 am

@ Gabe, how do you pick which of the xxx results is best suited for you?
Dustin Mooney

February 27th, 2008 at 8:13 am

I think that it is impressive and the fact of the matter is that no one knows what the revenue is, just like no one knows what the revenue for Facebook is. However, I do agree that it seems a bit high.
keith l

February 27th, 2008 at 8:27 am

I don’t have near the business knowledge that most of these commenter’s have, but that being said I really like yelp. I’m not a myspace/facebook/linkend in person but I find yelp very useful. To many features to list here that I like but I do check it a few times a week.

Its a great place for ideas on where/how to spend my entertainment/discretionary money which with the 3.30 a gallon gas seems to be shrinking every day.

The lists feature I find quite useful. (best fish taco places, most scenic parks, best dinners for under 10.00 etc)

When I was ripped off at a tire place I left a review to warn others.

With reviewers cataloging their spending habits it seems like it builds a great marketing profile of users specifically and crowds in general. If nothing else isn’t this worth something?
No Surprise

February 27th, 2008 at 8:35 am

Many people have posted GREAT points about Yelp’s valuation versus value. It is important to note that there is value in consumer reviews at any level, be it product reviews, service reviews, or even local reviews. Hence, Yelp provides some value in the marketplace.

Yelp’s valuation, on the other hand, does not support Yelp’s marketplace value. This is clearly due to overcapitalization. Had the management team built Yelp with a modest group of developers, and refrained from outside capital, then it is likely that Yelp could have financial legs for organic growth. As it has been pointed out, the development costs seem manageable, and organic growth takes time. It is not clear how much of Yelp’s growth is truly organic given the oft reported stories of paid reviewers.

Good luck to Yelp either way.
Dan Melinger

February 27th, 2008 at 8:43 am

To me, the math is simple. The US yellow page market is about $15 billion and is based on a dying distribution model (97% of the revenue is in paper YP, which the younger generation doesn’t even read). The market size isn’t shrinking, though, and companies like Yelp are picking up the slack. Yelp is a decent company to bet on. Not perfect, and expensive to market, but it’s probably cheaper to run than it is to print big books made of dead trees and distribute them door-to-door to every dwelling and business in the country.
jro

February 27th, 2008 at 9:12 am

I helped start a review site that was funded at the same time as Yelp, InsiderPages, Judysbook, etc. After building the feature set, we set forth to capture the YP advertising market. Kelsey Group and other industry pundits were playing up the pending “massive” migration of local advertising from offline to online. We all wanted to be there to capture it.

There was one big problem with capturing those ad dollars: the cost of sale. Reaching out to local businesses costs money, a LOT of it. I’m not sure what Yelp’s rate in customer-review-leads-to-advertiser equation looks like, but here’s some back-of-the-envelope math:

2.3 million reviews
Assume average of 1.5 reviews per business location (this is generous)
yields
1.5 million businesses reviewed to date

Break down those businesses:
60% local, 40% regional or chain (some split along those lines)

The ad dollars are in the “national-local” or “regional-local” businesses. They have bigger budgets, and they’re familiar with the web play. But if you’re in the local review business, how many of your users will enjoy ads from Applebees and Home Depot?

So, you go after the “local-local” businesses, because that’s what brings the value of your site (Yelp) over the big guys (Yahoo Local, Google Local). Reaching out to these folks? You have to put feet on the street, and the cost of the sale just doesn’t pencil out.

Because of this, Yelp’s strategy is obvious acquisition. But at those numbers and a fourth round, they need to be eclipsing the {portal-name-here} Local properties in traffic. In short, good luck.
TechcrunchBook

February 27th, 2008 at 9:20 am

Good post by #37. The key to making serious money in the directory space is converting all the mom & pops to the web. Sure it’s cheaper than print but the vast majority of joe blow bar owners barely check email, let alone understand how to market themselves online. Try explaining Yelp to Jugdish the Iranian dry cleaner. He has no clue. Getting those businesses online is what is going to set your website from the pack on the revenue side. If Yelp ever figured it out they’d be worth billions, but they won’t achieve that anytime soon. The time it will take for a mass of small biz owners to migrate online would chew up $200M or more in overhead for Yelp.
emad

February 27th, 2008 at 9:34 am

@jro: Feet on the street is definitely hard to do and the cost of acquisition of a customer goes up…but you haven’t factored into the equation the monthly spends, terms of the contract (which would keep the customer around for a while), etc. Restaurants, for example, are frequented regularly but have low transaction rates. Other categories may do better (there is usually a direct correlation to transaction costs, whether that is buying a plate of food or getting medical or legal services).

There are plenty of other local sites outside of “the big guys” that do well. They’re not all local search sites, either. Some of them are SEM companies, for example. There are also many other opportunities for moentization outside of having your own customers (there are plenty of local search sites partnering with similar sites to distribute their advertisers, for example).
Goboz

February 27th, 2008 at 10:18 am

Congrats to them…..now the real work begins: delivery 10x on $31m.

We are going to see a lot of movment in this space….it’s the next big market.
Viva

February 27th, 2008 at 10:26 am

Citysearch has been grinding away at the monetization of local for years and while they’re not executionally gifted (understatement), there efforts underscore the difficulty. Salesforce development, customer acquisition (and more importantly retention), editorial/advertisement “church v state” issues not to mention creating a decent site (something that CS has failed at miserabley)…long story short…local is tough. Good luck to Yelp.

A
Steven

February 27th, 2008 at 10:40 am

There is just no logic behind the 20X Revenue multiple when Google is trading at roughly 9X and at least has some metric behind it.

The CPM rate doesnt support the $28 P/U either so it really baffles me why DAG is accepting such a high valuation.
marianosoler

February 27th, 2008 at 10:43 am

I agree with the post #37 and I add my two cents, competition with the nameyourcity dot com guys ( geodomains) that are getting some atenttion from local advertisers, they are very fragmented media, in some cases with nothing more than a good domain name but old, organic traffic, specially for travelers.

They will need to be pretty good at execution to roll out the plan adding more cities, and , off course, selling local …,
mariano.
jro

February 27th, 2008 at 10:44 am

@emad: Very good points on differentiation about the business category set. We faced that very issue — lots of volume for restaurant ads, but monetization margins were the lowest in that arena. Finding the mix of monetization margin + sustainable volume is the hidden gem.

And yes, there are those local sites that are doing well in this arena, they just don’t have a $31MM investment and $200MM post valuation over their heads. I like the lower-cost approach to this market, just because spending your way to it hasn’t proven to me an effectively sustainable strategy for the amount of time it takes to get over the hump.
Baloo

February 27th, 2008 at 10:57 am

Yelp is an interesting site with a strong following, but as with any local advertising the problem is not the product it! but with the ability to have a way to hold the interest of the community…hyper local is the only way to go! check out http://www.samlltown.com
Neo

February 27th, 2008 at 11:36 am

How does Yelp get away with claiming they have “8.3m uniques in the past 30 days” when Compete and Quantcast both indicate *HALF* that at most?! Compete’s estimate for 12/07 = 4m; Quantcast’s estimate for 12/07 = 3.2m. Seems they’re lying here somewhere.
Neo

February 27th, 2008 at 11:38 am

Slight correction, Compete’s 1/08 estimate was 3.5m, a little less…
Ask Bjørn Hansen

February 27th, 2008 at 11:54 am

Neo,

Quantcast, Compete and the others really are only good for trends and relative numbers - not for absolute numbers. For comparison (which of course you can’t verify either), compete is showing less than a quarter of the UU analytics says and quantcast less than half.

The trends they display are about right though!

- ask
Ask Bjørn Hansen

February 27th, 2008 at 11:55 am

Eh - those comparisons (#48) were for yellowbot.com. (as the link).
Neo

February 27th, 2008 at 12:03 pm

@ Ask Bjorn Hansen:

OK, even if they’re “relative” numbers, how can Yelp claim *100%* greater traction than these third-party indicators?? A factor of 2x?? No way.
Amused

February 27th, 2008 at 12:57 pm

Wow. Do you think any of the former InsiderPages folks are depressed by this?

Post #36 is right. There definitely is some real money to go after — as a chunk of the $15B in print yellow pages moves online.

But serving small businesses is difficult work. And it’s not clear that Yelp has an appetite to tackle this — let alone already have mastered it.

Folks who are trying to build a business would test out a model(s) in several cities. And then once they validated one, would replicate it elsewhere. Without a profitable model in your early markets, what exactly will a salesforce and more office space do?

Wait a minute. Did I say build a business? I’m missing the point, aren’t I? Time to join the party. Where’s Stoppelman? Jeremy, we’re running low on wine.
Nick H.

February 27th, 2008 at 1:36 pm

Yelp is one of the standout websites of the last couple years for me. I have used 100s of new web services recently, but Yelp is the only one I have actually become devoted to. It truly helps locate the best spots in many cities - the only way you could do that previously was by asking lots of locals. The revenue issue is a big challenge, but the fact that they are a huge part of the decision making process for individuals seeking places to eat and shop, means they have a lot of value.
Hal Rucker

February 27th, 2008 at 2:19 pm

http://www.samlltown.com is a typo.

Try http://www.smalltown.com
marianosoler

February 28th, 2008 at 5:16 am

hal, pretty nice local approach with SmallTown website, incredible look and feel, however, the dude that developed the interfase did not think for a second about Seo!, ugly from that standpoint !,

mariano.
James Curran

February 28th, 2008 at 7:57 am

Mariano -

That’s a good point on the SEO of smalltown. However, since it’s so targeted to small towns, would it get the volume it would need to appear in results anyway?
Hal Rucker

February 28th, 2008 at 9:44 pm

Thanks for the comment about Smalltown. FYI: One of our patent applications is for the methodology we developed to enable our site to be indexed and optimized for search. Smalltown Webcards show up in Google, Yahoo and other search results just like a webpage does.

Do a search at Google for “Carol Leong Electrolysis” and her Webcard is the top result. (At least as of 2/28/08)

Another example is Ana Furniture. Their Webcard shows up higher on Google than their website, and they’re not even a customer of ours yet.

- Hal
Trace Johnson

February 29th, 2008 at 7:24 pm

Mike -

I love TechCrunch and respect the way you handle yourself on tv. I blogged the following questions at the end of some comments about your back & forth with Glen Kellman at http://mpayy.blogspot.com/2008/02/wheres-beef.html

My questions respectfully are as follows:

* What is the scenario that drives these valuations, and how frequently is that “Winner Take All”?
* What is the exit for these companies, and how frequently is that assumed to be a strategic buyer in the form of Google, Yahoo or Microsoft?
* Online advertising rose 25% last year, and is expected to continue to rise. However, there is clear evidence that click-through rates are falling to an industry average of about 0.25%. Search engine marketing text links are higher, but are they concentrated enough among the highly atomized online publishing community to run a business based on this revenue stream?
* What effect does the “Bandwagon Effect” play in many of these investments in crowded sectors? Money is also flowing into the Open Social/Data Portability sector with a number of players, most recently Gmail-creator Paul Bucheit’s FriendFeed. Similarly, as I discussed here, survey participants expected Clean Tech as the sector most likely to receive investments and be over-valued in 2008.

Take care -

–
Trace
Chris

March 4th, 2008 at 7:18 pm

I find that the yelp reviews are indeed all over the map. What is more interesting - at least for me, is putting out a discussion posting saying something like “Dallas Yelper coming to San Jose, needs ideas where to go for local food…” and watch the discussion thread. That gets you through a lot of the review noise and because people who post on these kinds of sites seem to want to express themselves, I get some places I would otherwise never have thought of. Then it is time for some research.

As far as revenue, earnings, etc are concerned, I agree it is really hard to see how these folks will make much money/ Must be holding out for the mythical and mystical “event”.